Will China no longer be the economic locomotive of the world?
The IMF estimates that China's GDP growth will rise from the 5.2% forecast for 2023 to 3.4% in 2028 – a far cry from the double-digit expansion of two decades ago. The point from Magdalena Polan, head of EM macro research at PGIM Fixed Income
The growing geopolitical divide with the West means a bumpy road for trade and obstacles to foreign investment. But these are just some of the challenges facing the world's second largest economy. Slowing growth, an aging population and a savings glut are driving a fundamental shift in China's economy, whose rate of expansion has outpaced developed markets for much of the past three decades. These unfavorable trends help illustrate China's difficulties in reviving its economy following the COVID-19 pandemic.
THE CENTRAL BANK OF CHINA CUT RATES
The country's central bank cut key interest rates in 2023 in hopes of stimulating economic activity after data showed a decline in exports and consumer prices in the summer. One of the challenges China faces is that its recent economic malaise comes despite its own industrial policy push. In the coming years, China's ability to stimulate growth appears limited.
GROWTH DRIVEN BY INFRASTRUCTURE
Heavy spending on new infrastructure was a major driver of economic expansion as China worked overtime to bring its economy into the 21st century. Opportunities to improve infrastructure are becoming scarce, as evidenced by the abundance of apartments and underutilized roads, airports and rail lines. Additionally, the nation will be forced to spend more on debt payments, limiting its spending capacity in other areas. The International Monetary Fund estimates that China's GDP growth will rise from the 5.2% forecast for 2023 to 3.4% in 2028 – a far cry from the double-digit expansion of two decades ago.
With China potentially entering an era of slower growth, expectations have risen for another set of policy prescriptions. So far, the Chinese government has supported domestic semiconductor production, with the aim of reducing dependence on other operators. More sophisticated chips are mostly designed and manufactured elsewhere.
FOREIGN INVESTMENTS IN DECLINE
Meanwhile, faced with the collapse of foreign investment, officials have presented a proposal to relax the rules governing investments by foreign companies.
WHAT TO EXPECT FROM CHINA
The weakening outlook suggests that China will no longer be as reliable a support for the global economy as it once was. In a six-month outlook, the World Bank revised down its forecast for East Asia's developing economies as a reflection of China's woes, forecasting growth of 4.5% in 2024 after previously estimating 4.5%. ,8%. In particular, downside risks to China's real estate sector could weigh on regional economies, such as Mongolia, due to declining demand for construction materials.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/cina-locomotiva-mondo-crisi/ on Sun, 12 Nov 2023 06:09:12 +0000.